On July 4, 2025, President Trump signed into law H.R.1, or the One Big Beautiful Bill Act. Several provisions in the act have significant implications for low-income housing development and financing.
Reduction in Housing and Urban Development (HUD) Department Funding
The act rescinds all unobligated funds previously appropriated to the Green and Resilient Retrofit Program (GRRP) under the Inflation Reduction Act of 2022. This includes $837.5 million in grant funding and up to $4 billion in loan authority. The GRRP was designed to support energy efficiency and climate-resilience upgrades in HUD-assisted multifamily housing. The rescission eliminates future funding opportunities under the program and may disrupt pipeline projects that had not yet received obligated funds.
Permanent Expansion of the Low-Income Housing Tax Credit (LIHTC)
On a positive note, the act also includes the following expansions of the LIHTC program:
- The reduction of the private activity bond financing threshold from 50 percent to 25 percent for 4 percent LIHTC projects, effective for issuances after December 31, 2025.
- A permanent increase of the 9 percent LIHTC allocation by 12 percent starting in 2026.
Modifications to the Opportunity Zones Program
The act also makes the Opportunity Zones (QOZ) program permanent, while both increasing the benefits and narrowing eligibility criteria. The increased benefits include:
- Commencing on July 1, 2026, and every 10 years thereafter, state governors will propose new qualified opportunity zones, and the Secretary of the Treasury will certify those zones.
- For investments made after December 31, 2026, gains deferred through investments in a Qualified Opportunity Fund (QOF) will be recognized on the fifth anniversary of the investment as opposed to a fixed date. Any investments made before December 31, 2026, will remain subject to the current rules and will receive the benefit of the gain deferral only until December 31, 2026.
- The act makes permanent the 10 percent basis step-up, which takes effect immediately before the end of the five-year deferral period.
- A 30 percent step-up in basis is available for rural investments maintained for at least five years.
The narrowing of the eligibility requirements include:
- After December 31, 2026, “low-income community” is now limited to census tracts with median family income at or below 70 percent of area median income (AMI) (the prior test was 80 percent).
- Census tracts with median family income at or above 125 percent of AMI are no longer eligible.
- The old “contiguous tract rule,” which allowed a census tract contiguous to a “low-income community” to be designated as a QOZ census tract so long as its medium income did not exceed 125 percent of the median family income of the low-income community to which the tract was adjunct, was repealed.
- The blanket QOZ for all low-income communities in Puerto Rico was also repealed, effective December 31, 2026.
- New reporting requirements have been added for QOZ investments.
Impact and Next Steps
Industry experts estimate these LIHTC provisions will support the development of over 1.22 million affordable homes nationwide over the next decade, including over 73,500 in New York State.1 Expansion of LIHTC initiatives aim to improve project feasibility and increase access to tax-credit financing for new affordable housing. However, the rescission of GRRP funds may cause delays or funding gaps for projects that had anticipated those resources.
Attorneys on Barclay Damon’s Tax Credits Team are available to discuss how these changes may impact your involvement in the LIHTC program.
If you have any questions regarding the content of this alert, please contact Danielle Katz, counsel, at dkatz@barclaydamon.com; Karina Shahine, associate, at kshahine@barclaydamon.com; or another member of the firm’s Tax Credit Team.
1Senate Finance Committee Releases FY 2025 Budget Reconciliation Bill that Includes Permanent LIHTC Expansion, Novogradac Estimates 1.22 Million Additional Affordable Rental Homes over 2026-2035 | Novogradac